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Sept. 15 — There's no question the America Invents Act of 2011 drastically changed patent litigation
practice by creating an administrative path for challenging patents, but whether those
changes are for better or worse remain a matter of perspective on law's fifth anniversary.

One criticism has been that the Patent Trial and Appeal Board has turned into a “patent
death squad” with a bias against patent owners that results in many patents being
declared invalid. Teresa Stanek Rea, who headed the Patent and Trademark Office when
the PTAB made its first decision, sharply rejected that criticism, saying it is not
supported by the numbers.

“The early complaints of pro-petitioner bias are not justified, especially in light
of recent statistics,” Rea told Bloomberg BNA in an email. So why the perception of
bias?

Robert A. Armitage, who helped draft the AIA, told Bloomberg BNA in an email that
the PTO made choices about the board's review process—such as picking the standard
for judging patents' validity—that created a misconception that the PTAB was anti-patent
owner. But even if statistics now show greater balance between petitioner and patent
owner success, it's difficult for parties considering litigation, licensing or investment
to determine a patent's value without speculating on its chances for surviving a PTAB
proceeding, he said.

“The AIA was a seminal start at needed reforms,” said Armitage, who sees a need for
more changes to patent law that would help the system function better. “Congress still
needs to act to secure a patent system optimally able to spur investment in innovation.”

Others, though see little need for anything more than minor adjustments as Congress
begins to contemplate what further changes to court or PTAB proceedings to undertake
in 2017. Rea and Ropes & Gray intellectual property litigation partner J. Steven Baughman,
who has compiled a perfect 35-0 record in PTAB trials, for instance, see little need
for anything more than “tweaks”
to current law.

Baughman: No More Finger Wagging

Kevin Jakel, founder and CEO of the Unified Patents Inc., an organization that advocates
for companies accused of patent infringement, especially by the non-practicing entities
known derisively as “patent trolls,”
said the PTAB has succeeded in its mission of serving as a cheaper alternative to
challenging patents in court.

“The PTAB has been a game-changer and, as the legislative intent suggested, it has
worked as a less expensive alternative to litigation,” Jakel told Bloomberg BNA in
an email. “The use of the PTAB in litigation has reduced the cost of settlement and
often removed invalid patents that should not have been asserted in the first place.”

When President Barack Obama
signed the legislation that became the AIA in 2011, though, the PTAB was not everyone's choice as the most
significant change to come (181 PTD, 9/19/11). The board already had final say on infrequently requested reexaminations of granted
patents, and the 500-pound gorilla now known as IPR—inter partes review—was supposed
to be only a replacement of the parallel two-party reexamination option.

But IPRs took on a life all their own. Challengers have filed over 5,000 IPR petitions
in less than four years. That compares to 1,919 inter partes reexaminations over the
program's 13-year life from 1999-2012, when inter partes review took over.

The AIA set up a two-stage challenge scheme: A post-grant review (PGR) petition could
challenge a patent on any grounds at all within the first nine months of its issuance,
while IPRs—for older patents—could only put new prior art before the PTAB and claim
invalidity for lack of novelty or obviousness in light of the new references.

Baughman remembers “finger wagging” by colleagues when he filed some of the first petitions
on Sept. 16, 2012 (180 PTD, 9/18/12).

“As we started winning, their tune changed,” Baughman told Bloomberg BNA. “In just
four years, the proceedings led to a tectonic shift in how litigation is viewed. It's
hard to overstate how important the PTAB has come.”

But like Rea, he bristled at the complaint that the PTAB favors challengers.

“The power and complexity of these trials really rewards a sophisticated approach
from either side,” Baughman said. “What initially was considered a death squad become
a place where both sides can prevail if they approach it in a thoughtful way.”

And Jakel, whose
organization—able to contest patents because Congress didn't limit the challenge to those involved
in litigation—has filed 53 IPR petitions in the last 1.5 years, added, “The suggestion
that the board is pro-petitioner just doesn't hold water, unless honestly and efficiently
assessing patent validity is somehow anti-patent.”

Armitage: Appearance Matters. Rea: Not to Fed. Cir

The statistics, particularly recently, back his claim with respect to IPRs at least (137 PTD, 7/18/16). Unified Patents' figures show under 40 percent of patent claims being canceled.

That is a few percentage points better than challenger success rates in district court,
but it's not surprising when the PTAB is using the “broadest reasonable interpretation”
(BRI) of patents challenged in these proceedings, according to Armitage. BRI allows
more prior art to be considered than the “plain and ordinary meaning” standard used
in district courts, and the chance of a patent being found invalid is higher with
BRI—because more prior material is taken into account when considering if an invention
is truly novel or not obvious.

But even if actual bias is hard to prove, the perception remains, Armitage said. “Just
as bad as actual pro-petitioner bias in IPR proceedings is the mere
appearance of pro-petitioner bias.”

The PTO made rules changes in response to patent owner complaints this spring (63 PTD, 4/1/16). But, Armitage said, “While the USPTO has addressed some of these appearance-of-unfairness
issues, it has yet to recant on its most serious such issue—its implementation decision
on BRI.”

Rea, now a partner at Crowell & Moring, disagreed, citing rulings on appeals by disappointed
PTAB litigants to the U.S. Court of Appeals for the Federal Circuit that have, for
the most part, upheld the board's judgments.

“The Federal Circuit is familiar with the early reports of pro-petitioner bias, and
their decisions do not support any bias in the PTAB proceedings,”
she said.

PGR Off to Slow Start

The AIA-created post grant review option has yet to play out fully, since a challenge
could only be made to a patent applied for after March 16, 2013. The first cases reaching
a final decision have favored the petitioner and it's possible that, like IPRs, practitioners
are waiting to see successes first. But Armitage believes otherwise, referencing what
some members of Congress now call a “scrivener's error” in the AIA's estoppel text—leaving
a PGR loser at the PTAB with limits on what it can challenge later in court.

Congress' failure to correct that “legislative error” has colored petitioners'
view of the PGR option, said Armitage. “The inability to pass corrective legislation
to limit the PGR judicial estoppel to issues actually raised has made this cornerstone
provision of the AIA unattractive to large numbers of potential petitioners,” he said.

Covered Business Methods Continuing Controversy

But the AIA also created a PGR cousin—a temporary “covered business method” (CBM)
challenge option set to expire in 2020. Sen. Charles Schumer (D-N.Y.) was single-handedly
responsible for its inclusion in the AIA (175 PTD, 9/9/11), decrying “thousands”
of patents creating a “plague” on Wall Street.

But the PTO's early predictions downplayed the concern significantly, and stakeholders
are generally not surprised that only 475 CBM petitions have been filed. Rep. Robert
W. Goodlatte (R-Va.) said in a hearing on Capitol Hill Sept. 13, “Based upon the statistics
and cases being reviewed through the business method transitional program, it continues
to be a success and is operating quite well. It will be important for this program
to remain strong in the future.”

The future of CBMs is likely to become a controversial issue. Petitions for U.S. Supreme
Court review have questioned how broadly the PTAB is interpreting “business method,”
while Schumer repeatedly tries to insert language that would expand the program—both
in breadth and length of time—into legislation that Goodlatte is spearheading, the
Innovation Act.

Baughman, who is counsel of record in more CBM proceedings than any other attorney,
said he would welcome an expansion, because CBMs allow the PTAB to consider more issues
than novelty and obviousness.

“CBMs have become a really important and powerful tool for some companies, other than
in the financial industry,” he said.

First-Inventor-to-File Controversies Just Starting

When Obama signed the AIA, stakeholders were concerned about changing from a first-to-invent
to a first-inventor-to-file
(FITF) system. That may still constitute a big change, but there has been too little
experience with first–inventor-to-file—the first patents granted under the system
were issued in 2014—to make a significant impact yet.

Meanwhile, two other issues have already generated controversy. And Armitage, whose
treatise Understanding the America Invents Act and Its Implications for Patenting, 40 AIPLA
Q.J. 1, 10-14 (2012), is widely cited, is concerned about both.

First, the PTO made rules surrounding the so-called “grace period”— the 12 months
preceding an inventor's patent application filing date—that allows some public disclosures,
written or spoken, about an invention to defeat the inventor's priority claim during
that time.

Armitage refused to blame the PTO, saying it was the only reasonable interpretation
of “complicated and much criticized AIA provisions” that tried to keep an expansive
pre-FITF grace period “that never existed.” He called for Congress to “rationalize”
the provisions, and reject a legislative fix proposed by four congressmen that aims
for an “outrageously expansive new grace period” (73 PTD, 4/16/15).

Second, a controversial case before the Federal Circuit asks whether the AIA changed
the law on “secret” use prior to the grace period. Under current Federal Circuit law,
such use can sometimes trigger the requirement for the inventor to file an application.
The AIA unequivocally changed the law, Armitage said, by using the terms “public use”
and “available to the public.”

PTO Funding

Rea's request of Congress was on a very different AIA aspect. The Judiciary Committees
in both houses fought to let the PTO control its own revenues and budget without congressional
oversight. They lost (181 PTD, 9/19/11).

But parallel Appropriations Committees accepted a funding procedure that, they vowed,
would always give the PTO what it collected, ending the “diversion”
of about $1 billion that intellectual property stakeholders paid but which the office
wasn't allowed to spend.

That promise was broken within a year. Another $140 million was diverted in fiscal
year 2013, with sequestration used as the excuse (96 PTD, 5/17/13).

“The PTO needs legislation that explicitly requires it to keep all of its fee income,”
Rea said. “The PTO should be allowed to manage its budget and maintain a sufficient
reserve. The uncertainty of the budget process adds unnecessary complexity.”

To contact the reporter on this story: Tony Dutra in Washington at
adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek at
mwilczek@bna.com

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